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ETFs See Rising Use with Institutional Investors, Active Advisors


With U.S.-listed exchange traded funds crossing over $1.4 trillion in assets under management and global ETF assets hitting $2 trillion, the fund products will attract greater interest among institutional investors and active advisors, according to iShares, the ETF business of BlackRock (BLK).

According to iShares, institutional investors will increase their use of ETFs in the coming year, and active manager and advisor ETF investment portfolios will also grow. [Global ETF Assets Cross $2 Trillion Mark]

“Active asset managers will likely continue to use ETFs for asset allocation in an effort to achieve alpha in balanced funds, asset allocation funds, DC [defined contribution] funds and even annuities,” iShares said.

Global asset managers have increased usage of ETFs from $105 billion in the third quarter of 2011 to $125 in the third quarter of 2012. The active managers and hedge funds utilize ETFs, particularly country and sector ETFs along with credit and emerging market debt, in global asset allocation portfolios.

Additionally, iShares points to growth for advisors who provide expertise about ETF portfolio construction and trading to outsourced model portfolios.

Meanwhile, institutional players will utilize ETFs as liquid resources.

“Institutional clients are increasingly implementing overlays which include ETFs in order to mirror the risk/return profile of a portion or the entirety of their policy portfolio,” iShares added.

Lastly, iShares believes that fixed-income ETFs will attract a greater following due to rising market volatility and lower bond issuance. Bond ETFs will allow institutions to efficiently access and managed fixed income exposure.

“In 2013, we believe institutions will continue to use devleoped market fixed income ETFs for passive core allocations, tactical strategies, transitions and risk management,” iShares said.

For more information on the ETF industry, visit our current affairs category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.